Three Steps to Better Outsourcing

Several recent high profile toy recalls should have reinforced some key considerations for organizations using or considering outsourcing. I wont claim detailed knowledge of these recalls or speculate on their root causes. I will assert, however, that these considerations apply to nearly every outsourcing situation as important parts of a broader strategy for risk management and resilience.

The recalls importance and potential impact are even more pronounced in resource-constrained organizations such as small and medium-sized businesses (SMB). Since the price of outsourcing is consistent vigilance, heres a few of the areas on which organizations should focus:

Choose Your Providers Carefully  Before you thank me for pointing out the obvious, ask yourself how carefully youve chosen your providers. In addition to the mainstream decision criteria for outsourcing, how many organizations have done the diligence to understand how current or potential providers will work proactively to prevent service failures? What sensory mechanisms and processes are in place to deliver that prevention?

Additionally, when failures occur, what does the provider done to help their client recover from that deviation, and what steps do they take to minimize its repetition? If a provider says theyve never had to recover from a failure, I suggest you consider the possibility theyre either being less than truthful (if theyre trying to be a best in class provider) or less than innovative (if theyre trying to be a truly differentiated provider). Either way, be suspicious.

One of my previous clients operated a blended inbound contact center while outsourcing their outbound marketing contact operation. Ill spare you the technical details, but the outsourcing provider experienced a rather troubling data integration failure. My clients customers received marketing contacts that were either completely contrary to their targeted segments, or in many cases no contact at all. Even worse, some customers received contacts for other marketing campaigns being managed by this provider resulting in disconnects akin to a toddler being asked to consider buying life insurance for their pet rock.

The outsourcing provider took very quick and decisive action in reporting the failure to their clients and apologizing for its occurrence. Then they stumbled by calling the failure a computer error and said they were closing the case. I suggested to the provider they involve their clients more deeply in the solution process by explaining exactly what went wrong, identifying the solution options and trade-offs, and soliciting their clients input for developing more preventative controls. The provider did follow some of these suggestions, and I believe it helped them reestablish their clients trust.

Instrument Processes and Relationships  Understand what level of visibility you will have into the providers processes. Even if that visibility is relatively minimal or even a black box you should still look for opportunities to inspect what you expect in order to minimize the impact of service failures and ensure quality.

Additionally, ask yourself how healthy your relationship with your outsourcing provider has been. Is this relationship highly interactive and proactive, or do you talk only when theres a problem or to renew a contract?

I once worked with client who was outsourcing their asset management operations to a third party. The outsourcing provider was looking to change the contractors they were using for data conversion. Because my client had a good relationship with the asset management provider, they became aware of this potential change and were able to help influence the providers choice of contractor based on previous experience as well as industry best practices. This proved mutually beneficial to my client and the asset management provider.

Have a Resilience Plan  Ive suggested talking to your outsourcing providers as part of planning how to best prevent service failures and recover from such failures resiliently. Although the necessity of having such a plan is fairly obvious, we too often see examples of poor planning and/or poor execution. Although I wont discuss developing them here, good resilience plans should minimally include the following high level elements:

Acknowledging, apologizing and taking responsibility for failure: Even if its the fault of your outsourcing provider, your organization is the primary face to your customers and should own the problem.

Fixing the problem, not the blame: The only fingers your customers, shareholders and staff should see pointing are yours as you identify the cause of the failure, as well as the steps youre taking to fix it and to ensure it doesnt happen again.

Forgiving but not forgetting: Customers will forgive if they trust that youre acting in their best interests. Additionally, make sure your customers will remember how well your organization handled the failure. Customer loyalty is priceless.

It seems like the consequences of inconsistent vigilance have been exposed on a frequent basis lately. The question for organizations with outsourcing initiatives is whether youd like to look at yourself in the mirror, or on camera?

Mark Cioni is president of MV Cioni Associates. He has been helping global businesses to improve their decisions, operations and performance for over 25 years and can be reached at mark@mvcioni.com.